Canada’s dollar dropped to the
lowest level in six weeks as America’s deficit impasse and
Europe’s sovereign-debt crisis spurred demand for the safety of
the U.S. currency.

The loonie, as the Canadian dollar is also known, was
headed for a 3.7 percent drop this month against the greenback
as stocks and crude oil fell today and a report showed the
nation’s wholesale sales rose in September less than economists
forecast. The loonie weakened as a U.S. debt-reduction committee
with special powers to dissolve congressional gridlock failed to
reach agreement.

“We are once again in a risk-off environment,” Jim Phoenix, a managing director at Canadian Imperial Bank of
Commerce in Calgary, said in a telephone interview. “Certainly
the European story is still the overarching concern in the
currency markets. As that situation unfolds, it puts upward
pressure on the U.S. dollar and downward pressure on the euro
and the Canadian dollar.”

The loonie dropped 1.2 percent to C$1.0401 per U.S. dollar
at 5:15 p.m. in Toronto, the weakest since Oct. 7. One Canadian
dollar buys 96.15 U.S. cents.

The MSCI World (MXWO) Index of stocks in developed nations dropped
2.3 percent today after falling every day last week. The
Standard & Poor’s 500 Index slid for a fourth day, shedding 1.9
percent. Futures on crude oil, Canada’s biggest export, were
down 0.4 percent to $97.07 a barrel in New York.

Government Bonds

Canadian government bonds rose, pushing 10-year yields down
two basis points, or 0.02 percentage point, to 2.10 percent. The
price of 3.25 percent securities maturing in June 2021 increased
19 cents to C$109.86.

A special debt-reduction committee in the U.S. Congress
failed to reach agreement, extending partisan gridlock into the
2012 election year and setting the stage for $1.2 trillion in
automatic spending cuts.

“After months of hard work and intense deliberations, we
have come to the conclusion today that it will not be possible
to make any bipartisan agreement available to the public before
the committee’s deadline,” said panel co-chairmen Representative
Jeb Hensarling of Texas and Senator Patty Murray of Washington.

“General nervousness and increased focus on political
gridlock in the U.S.” is contributing to the Canadian
currency’s decline, said David Watt, a senior foreign-exchange
strategist at Royal Bank of Canada’s RBC Capital Markets unit in
Toronto, in an e-mail message.

Moody’s on France

Moody’s Investors Service said today higher French
borrowing costs are increasing fiscal challenges as the region’s
debt crisis infects the top-rated nations. France’s highest
rating is at risk of being lowered, the newspaper Le Figaro
reported today. A spokeswoman in Moody’s press office in London
declined to provide further comment.

“France is of some concern, but it has been for some
time,” said Firas Askari, head of currency trading at Bank of
Montreal’s BMO Capital Markets in Toronto, in a telephone
interview. “Europe is in a bad position generally, and the U.S.
is in a bad fiscal position.”

The loonie has depreciated 4.2 percent this year in the
biggest drop among 10 developed-nation currencies after the New
Zealand and Australian dollars, according to Bloomberg
Correlation-Weighted Currency Indexes.